CSP Disclosure Requirements for Contractors: Time for Reform

GSA’s Office of Inspector General’s recent memorandum to the FAS Commissioner continues to confirm the impracticality of contract compliance under the current MAS pricing policies. The memorandum is the third in a series of memoranda (March 25, 2014, March 8, 2013 and September 26, 2011) regarding recurring issues identified in the preaward contract audits done by the Inspector General’s Office of Audits.

Consistent across each of the memoranda is the IG’s finding that contractors “provided information that was not current, accurate, and/or complete to support proposed prices.” Or, as stated in the March 25, 2014 memorandum, “[c]ontractors continue to provide commercial sales practices disclosures that are not current, accurate, and/or complete to support their proposed prices.” The IG found that over the three years covered, close to 80 percent of the audited contracts had issues regarding the currency, accuracy and completeness of the commercial sales practices information submitted to support pricing. The chart below highlights the prevalence of the CSP issues identified by the IG across the contracts. The chart is taken from the March 25th memorandum:

The chart is a powerful statement regarding the cumbersome, confusing and impractical nature of the CSP disclosure requirements for contractors and contracting officers. It is evident from the high degree of non-conformance that even experienced contractors struggle with the disclosure requirements. Moreover, the oversight community’s expansive, literal interpretation of the pricing disclosure requirement increases the compliance risk for MAS contractors beyond what was ever intended under the program. When the GSA IG Office of Audits finds over a three year period that 80 percent of contractors fail to submit current, accurate and complete CSP data, it is a compelling statement that the MAS pricing policies and procedures are impossible to comply with for contractors competing in the commercial marketplace. This is not a new issue. Over 20 years ago the United States Court of Appeals for the First Circuit found the Government’s reading and implementation of the MAS pricing disclosure requirements unreasonable. As the overwhelming noncompliance noted by the IG demonstrates, the same issues are at play today.

In United States v. Data Translation Inc., 984 F2d. 1256 (1st Circ. 1992) the United States Court of Appeals addressed the practicality, or rather, the impractically of compliance with an expansive or literal reading of the MAS pricing disclosure requirements. In a 1992 decision authored by then Chief Judge Stephen Breyer (now Supreme Court Justice Breyer) the Court of Appeals affirmed the District Court’s verdict’s denying the Government’s claim that Data Translation violated the contract terms and the federal False Claims Act (31 U.S.C. 3729 et. seq.) by failing to fully disclose the pricing discounts it gave to non-governmental customers as required by the terms. In sum, the Government alleged that the pricing information it relied upon in negotiating the contract was not current, accurate or complete.

The Court concluded that a literal reading of the disclosure form that all pricing transactions were to be disclosed created ambiguity and incomprehensibility. According to the Court, no reasonable person could have believed that the Government really wanted the complete and total disclosure for which the disclosure language appeared to ask. Rather, the Court concluded that a reasonable interpretation of the clause would require disclosure of similarly situated transaction pricing. In reaching these conclusions the Court examined three sets of considerations: (1) Business context of the compliance requirements; (2) Statutory context of the MAS program and the compliance requirements; and the (3) Negotiation context addressing the facts and expectations of the parties during the contract negotiations. This blog will address the business context and the statutory context.

With regard to the business context, the Court observed that an ordinary business person would not interpret the disclosure form literally as the form “asks a business to shoulder a compliance burden which will often seem inordinately difficult or impossible to carry out.” The Court used as an example the burdens a commercial firm in a competitive industry would face in tracking each and every sale across thousands of different customers, through a host of sales personnel, facing shifting competitive pressures from market to market, time to time and from one customer to another. Tracking that would not only include price points but price-related terms and conditions.

With regard to the statutory context, the Court highlighted the legislative intent behind the MAS program. The overarching goal in creating the MAS program was “simplification” of the procurement process through reliance of competitive commercial markets. The Court contrasted the simplification goal with the burdensome nature of the disclosure requirement articulated in the contract stating “if the MAS properly selects its products from those sold in truly competitive commercial markets, elaborate paperwork, audits and inspections, then by significantly increasing competitive firms cost of doing federal government business, could result in the government’s being charged higher, not lower prices.” In a statement regarding the Government’s MAS pricing policies, procedures and their interpretations that remain true today, the Court observed the following:

[A] system that lays down a literal rule with which compliance is inordinately difficult, turning nearly everyone into a rule violator, and then permits the agency to pick and choose when and where to enforce the rule, is obviously undesirable. It destroys in practice the very hope of rationally cabining agency discretion that the rulemaking process promises in principle.

That the GSA IG has consistently found that the vast majority (four out of five) of MAS contractors have issues with the currency, accuracy and completeness of the CSP pricing disclosures is a powerful statement regarding the impracticality/ incomprehensibility of the disclosure requirements. Moreover, the new statutory and regulatory requirements for competition at the task and delivery order level drive pricing and value for customer agency requirements; not a pricing compliance scheme that increases costs to companies, limits their ability to compete in the private sector, and creates barriers to new, innovative solutions.

The need for reform of the MAS program remains clear as evidenced by the GSA IG’s memoranda. Reform should reflect the current state of the commercial market place and the statutory and regulatory mandates for competition at the order level—competition for agency specific requirements should and does drive pricing in the MAS program. The Coalition has developed a white paper addressing the outdated, pricing policies and procedures. The Coalition looks forward to a positive dialogue addressing the current pricing framework. Such a dialogue provides an opportunity to increase competition, value and innovation under the MAS program. It is time to reform the pricing policy.